Indian trade to rival China

India has overtaken the UK to become Australia’s sixth largest export market and Western Australia’s fourth, worth more than $2.8 billion to WA last financial year.

And with the state’s share of national exports to India amounting to 57.7 per cent, it is no surprise that the destination is being touted as the ‘new China’, or that the WA Government is looking to strengthen ties with India via a memorandum of understanding signed last month.

Australian Trade Commission chief economist Tim Harcourt said India and China were being compared partly because of their enormous populations.

“China has 1.3 billion people while India has 1.05 billion,” he said. “Lots of people means lots of potential.”

But, Mr Harcourt, said the comparison was also made because of the relative economic success of China compared with India during the past 20 years.

“In 1980, India and China were about level pegging when it came to GDP and per capita income,” he said. “By 2000, however, China was about twice India’s size in terms of GDP and GDP per capita and eight times its size in terms of exports.”

Because India only opened its economy quite recently, during its 1991 balance of payments crisis, it has a lot of catching up to do.

Mr Harcourt said India had the potential to be a real “hare and tortoise” race in coming years.

A report from the Lowy Institute’s international economy program director, Mike Thirlwell, titled ‘India – the next economic giant’, said India’s catch-up would be based on growth in investment, labour force and productivity.

“India’s fiscal position is poor but its demographics will help as a younger working age population will be able to provide tax revenue for government services,” Mr Thirlwell said.

“The labour force is actually growing as a proportion of the population. In addition, India’s comparative advantage in the export of services and software makes it an exciting economic prospect.”

Mr Thirlwell expects that India’s rise will be services oriented rather than in merchandise, a traditional strength of East Asian economies.

What this means for Australian exporters is opportunities in food and beverage, intermediate manufacturing goods, tourism, education and entertainment.

However, according to Austrade research, only 1,500 Australian companies export to India, which is half that of China and well behind Singapore, the US and New Zealand.

Mr Harcourt said that, on current rates of economic growth and provided economic reform continued, India would join China as a key export market for Australian exporters to watch in years to come.

The importance of India to WA was demonstrated last month with the signing of an MOU between the Indian Government and the WA Government and the Chamber of Minerals and Energy of WA.

State Development Minister Alan Carpenter said the MOU would provide WA with an avenue to increase engagement with one of the world’s rapidly emerging economies.

“India’s growing strategic importance and continuing economic expansion means it is set to become one of Australia’s key regional and bilateral partners,” he said.

“WA and India have a lot to offer each other. We have the resources, technology and services to partner India’s continued economic expansion, while India stands to benefit from our investment, particularly in areas such as energy and resources.”